Why Amazon is my favorite right now among my 'Big Four'; Palantir Technologies looks like one of the most extreme stock promotions I've ever seen
1) I've spent the past week covering the (exceptional) earnings reports of my "Big Four" stocks...
They were the core holdings I recommended in the April 2019 inaugural issue of my former newsletter Empire Investment Report at my old firm Empire Financial Research:
- Berkshire Hathaway (BRK-B)
- Amazon (AMZN)
- Meta Platforms (META)
- Alphabet (GOOGL)
On average, these stocks have nearly doubled the performance of the S&P 500 Index since then:
I continue to like all four stocks at today's levels. But my favorite right now is Amazon...
The company has grown its revenues and profits at an exceptional rate over the past decade. Take a look at this chart:
Yet, as you can see from this chart in my October 28 e-mail, its stock has done poorly over the past five years. Amazon has trailed its big-tech peers and the S&P 500 over that time frame:
The next chart shows Amazon's price-to-earnings (P/E) multiple based on expected earnings over the next 12 months. As you can see, the stock is now trading at close to the lowest level of this multiple in the past decade:
For more insight on Amazon's bright future prospects, I recommend reading this essay from last week by my friend and NYU marketing professor Scott Galloway: Big Tech Stock Pick of 2026: Amazon.
In it, he argues that Amazon's massive investment in its warehouses – and especially robots – is about to pay off in the form of expanding margins and profits.
Galloway notes a big milestone for Amazon earlier this year:
In June, it deployed its millionth robot worker, putting the company on pace to have more robots than humans in its warehouses by yearend.
And take a look at the chart below that Galloway shared...
It shows that Amazon has deployed 2.5 times more robots as the rest of the U.S. combined... and more than any country other than China:
As a result, Galloway notes:
Amazon averaged roughly 670 employees per facility last year – the lowest number in 16 years. Meanwhile, those employees now handle 22x as many packages, on average, as they did a decade ago.
Take a look at this chart from his essay:
In summary, over the past five years, Amazon's stock has massively underperformed its business for a simple reason: It had previously become richly valued.
That's no longer the case today.
As such, I expect Amazon to follow (rapidly growing) earnings going forward. And there might even be room for multiple expansion... which would really turbocharge returns.
2) At the other end of the spectrum is AI poster child Palantir Technologies (PLTR)...
Regular readers will recall Palantir topped my "Stinky Six" list of stocks to avoid that I named in my October 29 e-mail. As I wrote:
Palantir Technologies (PLTR): With a $450 billion market cap, it's trading at 107 times this year's revenues and 292 times next year's estimates. I've never seen a mega-cap stock trade at such an extreme valuation. It makes Cisco Systems (CSCO) trading at 180 times earnings at the peak of the Internet bubble look cheap! Palantir is at least four times overvalued, as I explained on August 11.
This week, Palantir reported very strong third-quarter earnings. Year over year, revenue grew more than 60% and net income rose more than 200%.
That said, operating cash flow only grew 21%. (When the cash-flow statement doesn't match up with the income statement, it can be an indicator of aggressive accounting. That's something I'll need to look into here.)
In spite of huge numbers, Palantir's stock dropped about 8% yesterday (though it's still up around 152% this year).
That's what happens when a stock is wildly overvalued.
Palantir CEO Alex Karp is smart enough to know this... which is why he engaged in ridiculous puffery in his quarterly letter. As he wrote:
It is worth remembering that the business is now producing more profit in a single quarter than it did in revenue not long ago.
This ascent has confounded most financial analysts and the chattering class, whose frames of reference did not quite anticipate a company of this size and scale growing at such a ferocious and unrelenting rate.
Some of our detractors have been left in a kind of deranged and self-destructive befuddlement.
And as he continued:
It has indeed been difficult for outsiders to appraise our business, either its significance in shaping our current geopolitics or its value in the vulgar, financial sense.
The reality is that Palantir has made it possible for retail investors to achieve rates of return previously limited to the most successful venture capitalists in Palo Alto. And we have done so through authentic and substantive growth.
Then, in an interview with CNBC yesterday, Karp lashed out at short sellers – including my friend Michael Burry of The Big Short fame.
Karp didn't mince words. As he said: "The idea that chips and ontology is what you want to short is bats--- crazy."
Here's an excerpt from the CNBC article about the interview:
"I do think this behavior is egregious and I'm going to be dancing around when it's proven wrong," said Karp of short sellers...
"With the shorts it's very complex... honestly I think what's going on here is market manipulation," Karp said. "We delivered the best results anyone's ever seen. It's not even clear he's not doing this to get out of his position. I mean, these people, they claim to be ethical, but they are actually shorting one of the great businesses of the world."
A CEO behaving like this is one of the best "tells" of a stock about to collapse.
To be clear, I have no reason to believe there's anything fraudulent about Palantir. It just looks like one of the most extreme stock promotions I've ever seen...
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.